Reserve Bank raises repo rate to 7.25%, adding pressure on indebted households
The Reserve Bank’s 25-basis-point hike to 7.25% will raise repayments for households with variable-rate debt, adding pressure as fuel, transport and other living costs remain high.
The South African Reserve Bank has raised the repo rate by 25 basis points, to 7.25%, raising concerns over financial strain on households grappling with higher costs. The Monetary Policy Committee unanimously approved the increase, which will take effect immediately. This is the second rate hike this year, with the prime lending rate now at 10.75%.
Reserve Bank Governor Lesetja Kganyago cited global supply shocks from the Middle East conflict and the Russia-Ukraine war as contributing to inflation risks. The Bank has revised its inflation forecast for the year to 4.4%, with headline inflation expected to surpass 5% later in the year. Economic growth is projected at 1.2% annually, despite a contraction of 0.2% in the second quarter.
Cosatu criticized the decision, stating that higher borrowing costs would make home loans and other debts even more expensive for millions of workers struggling with wages. The trade union federation warned that the increase will put further financial pressure on an already weak economy. Sanlam Investments economist Patrick Buthelezi highlighted concerns about persistent services inflation, which advanced to 5.1% in August.
The Bank's monetary policy stance remains restrictive to curb the risk of entrenched price pressures. While the Bank expects no further rate hikes under current conditions, economists anticipate a "higher for longer" policy.
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